Posted by
King David Caul on Wednesday, April 30, 2008 3:52:29 AM
I think we have a monetary "Lord of the Flies" scenario in our present banking institutions. In a fiscal jungle seemingly absent of authority or law, there are a few banking institutions which appear to seek reasonable and ethical working relationships with their customers. But another more energized group has splintered, painted their faces with blood, and are dancing half naked around their fire in a savage, barbaric celebration of their powers in this free-for-all. And as the author of the classic tale showed us, the "might means right" bad boys are destined to acquire the most valuable commodities, and as such will gain the defecting members of the honest and civil community, until savagery rules. It is a dark scenario.
Believe me; I never expected to make an analogy between Lord of the flies and modern banking. But while many banks seem to trying to function in a civilized way, a huge segment of the banking industry seems to be turning savage and seeking the thrill of the hunt in pursuit of any profits it can collect, no matter how it will play out in the long term.
Obviously, nobody needs to be told today that a lot of lending and mortgage practices have been shady, risky, deceptive, questionably creative, etc. to the extent that we now see chaos in this realm. Maybe this mess kind of gets rinsed away... or maybe it just suddenly fully implodes like a Los Angeles highway sinkhole, triggering lingering global banking disaster. I'm sure I don't know. But as we've already witnessed, the taxpayer can often be relied on to cleanup the mess. Anybody need a used interest-only loan?
Examing banks further; the fees we’re paying for accounts have nearly tripled in the past decade. Beyond the familiar maintenance fees and minimum balance fees, a NSF (nonsufficient funds) charge has reached $45, and bounced check fees now average $30. ATM fees can be massive, and can be incurred from your own bank AND the ATM's host bank. Some ATM arrangements may charge you as much as a $10 fee for using an ATM more than three times a month. Fees for check "stop payment” are typically $25, and returned-deposit fees of up to $10 might accompany the many resulting bounced-check fees. We have seen the institution of fees to talk to bank tellers face-to-face. Cashier's checks and money orders can now cost $10. Payments by phone and copies of old checks can now incur significant fees. You may also see fees with some banks for the privilege of enjoying online banking services. And while you will probably be able to select a rush payment option for Bill paying, it can come at a price from $5-$15. Paying for retail purchases with a PIN card may incur additional fees. Customers may be charged a $6 monthly fee for not having direct deposit. Wow. Be glad too, because there appears to be no cap for these fees, so maybe we should consider them low.
In addition to your significant overdraft fee (should you accidentally top your balance), you could see a cascade of these charges where you did not expect it. That's because banks are allowed to change the order in which the checks clear. Read that sentence again, if you didn't fully absorb it. This could cause you to bounce numerous checks as opposed to one, in certain routine situations.
How about Credit cards? Credit cards are so Lord of the flies. I mean, there's so much savage antisocial behavior going on its mind-boggling. It doesn't seem that some banks even CARE if waves of population pledge with their entire being to never do business with them again. And some credit card practices of late seem designed to force their borrowers into default! It's madness, right?
At this point, we ALL know ALL too well the dangers and the joys. I'm going to skip any hypocritical lecture I might feel obliged to make about only spending what you earn; I've toyed with credit way too much to pretend I'm clever with it. For what it's worth, I escaped my Card debts and ain't never going back. Not cause I'm so much wiser, but because credit cards are so much more EVIL than ever before.
The really fascinating credit card aspect is the contract you have with your banking institution. What the #$%&* ...Is there a single contractual relationship anywhere else in modern society where a contract means one-party must follow a lengthy explicit set of rules, and the other party retains the privilege of doing whatever they want, whenever they want, for whatever reason they feel. This is fascinating in the most Jerry Springer-grotesque legal freak show sort of way. It turns my stomach, and makes me want to gather the townspeople with torches and storm the banks in rage. How in God's name is this legal? Are we really this backward, in the 21st-century? And let's not mince words, these multipage, super fine print, legalese documents which are our contracts in these lending arrangements, do tell with great precision the limitations of our rights as the borrowers. But in no uncertain terms, buried deep within the sleep-inducing rhetoric, is the description that the bank/lender retains complete privilege to change the terms at any time; and to change our rates for whatever purpose suits them. From what I've seen, I believe most of these contracts also bind us to arbitration, so that we are contractually foregoing our rights to ordinary, legitimate legal recourse should there be disputes. And man, oh man, are there disputes.
(www.consumeraffairs.com/credit_cards/capitol_one.htm
http://www.epinions.com/msg/sec_~forums/show_~threads/cat_id_~24/id_~7481/forum_id_~160/pp_~1#posts)
Most of the disputes arise from abusive application of jaw-dropping penalties and fees, or the bank's precious caprice "Universal default". Many have already encountered the concept; the banks can, will, and are frequently jacking your annual percentage rate through the roof (one card cited at 35%!), for no reason whatsoever. By contract, they have retained this right. They argue they do so for legitimate reasons. For example, if your credit report has gone bad. But, they don't mind doing it because...you are late paying your electric bill or mortgage, take out an auto loan, have an error in your credit report, are deemed to have too much overall debt, have too much available credit, or even make an inquiry related to a car loan or mortgage. Bank of America has gone further and is apparently also using an “internal criteria" that isn't even available to consumers for examination or understanding. And when you are subjected to a newly skyrocketed rate, the penalty you suffer applies not only to future charges but to all balances of your past charges. This is effectively a RETROACTIVE repricing!
And "fixed rates" aren't fixed. It simply means that they have to give you 15 days' notice before raising your rate. Better than no notification at all (variable rate), I guess. And it’s not our imagination that Grace Periods are shrinking. The average grace period now is about 21 days, some 20 (compared with nearly 30 days in 1990). And for any grace period to be "interest-free" the bill must be paid in full. If you pay 99% of the bill on time, you will still be charged interest on 100 percent.
How about that late fee? They've hit $39 mark, and they will be applied if your payment didn't arrive by a certain time on the due date. Late payments also typically trigger that 29.99% new APR. While online banking should help many avoid late fees, Providian and First USA stopped permitting payment by paypal. Other banks have been slow to shed FEES for online payments. And it's quite perplexing that it takes so many days for some banks to process an online payment. Apparently these companies aren't very familiar with these newfangled computery gadgets, and we’re going to have to give them time to get efficient with them.
Federal law requires that credit card issuers mail you your statement at least two weeks before the due date, but the mail isn't necessarily consistent and it is hard to know why the statement sometimes arrives with much less room for successful due-date achievement. You might try committing to memory the due dates of these bills, such that you anticipate them successfully! That is being taken into account, and consequently your issuer might suddenly shift your due date forward five days or so! Do not turn your back on these people.
Card issuers are being discovered to resort to extremely unethical tactics to push you over the limit, and as such incur over limit fees (also hitting the $39 mark).
You might receive a balance transfer offer in the mail. The terms are good and you mail it in with the request of transferring a large balance. It is quite possible (if not likely) to receive a card with a much lower credit limit. This will leave your new card practically maxed out from the moment you receive it. It is almost inevitable that you will go over limit, and once again invite the application the over limit fee and of a new 29% annual percentage rate. Complaints are high concerning very low limit credit cards; these typically carry significant fees before any charges are even incurred ($59 annual membership fees). Perhaps you will receive a card with the high credit limit you expected, but quite commonly the annual percentage rate will not be as good as advertised. This is apparently due to some reevaluation and reexamination of your risk, as explained in some fine print. In most business practices, this would be called "bait and switch". There are accusations that you might be charged interest on a balance transfer well before the actual transfer takes place, effectively paying interest to both card issuers simultaneously for a term. Discover card has been accused of offering gorgeous balance transfer rates, but then requiring a minimum $25 purchase per month or you forfeit the rate. These new purchases have a much higher rate and will be paid off last, of course.
Also, though you may be promised a "low rate for life" on your balance transfer, any new charges will not be at this low rate, and will be paid off last. Balance transfer offers promising low rates often expire after six months as explained in the fine print. The maximum charge for making a balance transfer is being eliminated by some issuers; this could mean enormous fees for a large balance. Lastly, look closely for fine print explaining that your low balance transfer rate will be void if you retransfer a balance within a year's term. And of course, don't take it too seriously when you receive those familiar “pre-approved 0%” applications.
Using cash advance options is very costly. These charges now average 3% with a $10 minimum and NO maximum whatsoever. They come with no grace period and the especially high cash advance interest rate applies immediately. Your ability to pay this off is intentionally handicapped by applying any payments you make to your lower interest balance before they will be applied to your cash advance balance. The convenience checks we receive will not necessarily be very convenient either, when you have to pay for them. It is critical to examine the terms for these checks. Often they are at the cash advance rate with full handling fee.
Some rather interesting new penalty fees have appeared. Punitive higher rates have shown up for those who pay only the minimum every month. You can also even be penalized for NOT using your card. Some customers are being charged an annual fee because of their habit of paying their bill off every month. You may find that there are transaction fees for calling the issuer's toll-free number. Paying by phone can cost you a fee of $5-$15. Especially unscrupulous card issuers have been discovered to generate a card cancellation fee ($25 in the case of Advanta bank).
A very dicey subject is the "TWO CYCLE DAILY AVERAGE" method employed quite frequently to calculate your monthly interest obligation. This is a rather sneaky and complicated practice. It primarily stings people who occasionally carry a balance over a few months. Simplified, this method uses the average daily balance but calculated over two billing cycles instead of one. If you carry a balance, it eliminates the benefit of the grace period and charges you retroactive interest on your purchase. It may sound worse than it ends up being, but it can be gouging you with a misleading effective annual percentage rate, depending on how you’re paying your bill. It can become particularly annoying when you're trying to pay off your last few dollars of debt and close your card. You pay your entire bill; surprise new balance. It just isn't ethical, whether it's harming you're not.
At one time, using a credit card overseas was a smart move monetarily. Today, there is typically a 3% transaction fee, in addition to conversion fees. This 3% fee can be incurred even if the transaction is conducted in US dollars.
Some more ugly new trickery is showing up from credit card issuers. Some consumers are being offered a cash advance check or an opportunity to skip a month’s payment, and in a disgusting coincidence, they find their credit limit has lowered. This puts them over the limit, with the subsequent fees and probably the arrival of a new annual percentage rate. Also, there has been a pattern of card issuers frequently changing the address to which payment must be made. If you're not paying careful attention, you could easily overlook the change and inadvertently mail the bill to an outdated address, making your payment late, with all the fun that comes next.
Customer service over the phone can be a game of endurance. It might also be an exercise in global linguistics and thick accents. If you have a dispute concerning your bill, you will likely be paying interest on the balance and the penalty fees even while the dispute is being investigated. Waiting for the results of an investigation can be infuriating as you find new penalty fees resulting from your not taking action on the amounts in dispute.
Those with poor credit ratings can be the prey of very bad deals, resulting in a $300 limit credit card at high rates, with bizarre fee-based charges occurring before the card is even used for the first time ("Program Fee" and "Account Set-Up Fee", for example).
Credit cards associated with specific retailers (RewardZone MasterCard from Best Buy, issued by HSBC for example) have been found to charge a fee of 50% for a requested raising of a consumer’s credit limit!
“Credit Insurance” is a scam is used almost universally by the big credit card companies. Nobody of any financial intellect will likely recommend this coverage. Amazingly, this will not stop card issuers from signing you up automatically and charging you monthly. You should practically expect it. Similarly, the “disability insurance” is notoriously unlikely to help anyone who might actually need it. There are cases of customers being charged for disability insurance coverage, even though they were never eligible to receive it in the first-place, and could never receive any payout. Another form of insurance is “Theft insurance”. This is unecessary if not insincere, as by law you are liable only for the first $50 at most, should your card be stolen and you report in a timely manner.
Finally, banks today have been guilty of seeking out people who recently emerged from bankruptcy. They know that you will not be able to declare bankruptcy again in the near future, and the new bankruptcy laws lobbied through Congress now make bankruptcy difficult and costly.
You may notice so many credit cards are originating from Delaware or South Dakota. These states offer laws favorable to these abuses and permit interest rates and fees that would be illegal elsewhere. If you are abused by your credit card, perhaps we should boycott these states?
We're all so out of control, right? Well, you used to hear ALL THE TIME about how important it was to establish credit. Credit cards became a mandatory exercise in getting a credit rating underway. Who required us to have these cards? Banks. Nice arrangement.
We could not use credit cards at all perhaps, but good luck, and try paying for something online without one. And at this point, even if you pay off balances every month, you might get penalized for that.
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©2008 king david caul